2016 Budget Analysis. Tax Proposals November 2015

Transcription

1 2016 Budget Analysis Tax Proposals November 2015

2 KPMG 32A Sir Mohamed Macan Markar Mw P O Box 186 Colombo Sri Lanka Tel 94 (11) Fax 94 (11) kpmgsl@kpmg.com Internet 20 th November 2015 For clients of KPMG in Sri Lanka The budget proposals for 2016 were presented in Parliament today, focusing on simplifying the tax and regulatory environment and moving to a low tax regime. This publication has been compiled on a high-level review of the proposals in the limited time available to us. We may also emphasize that these proposals need to be enacted by Parliament for legal enforcement. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Chartered Accountants KPMG, a Sri Lankan partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. Partners: M R Mihular FCA, FCMA (UK), P Y S Perera FCA, FCMA (UK), C P Jayatilake FCA, MSc, BSc. (Hons), MBCS (CITP), T J S Rajakarier FCA, FCMA (UK), FCCA, W W J C Perera FCA, CFE, B.Sc., Ms. S Joseph FCA, FCCA, ACMA (UK), ACIM(UK), MA, BSc., Ms. S M B Jayasekara ACA, MBA, W K D C Abeyrathne ACA, BSc., S T D L Perera FCA, FCMA, G A U Karunaratne ACA, BSc., R M D B Rajapakse ACA, B K D T N Rodrigo ACA, MBA., R.H. Rajan ACA Principals: S R I Perera LLB, ACMA(UK), H S Gonnewardene ACA.

3 Contents Page Direct Taxes 3-19 Indirect Taxes Tax Administration 38-44

4 Direct Taxes Income Tax Economic Service Charge New Investment Act 4

5 Direct Tax Income Tax New exemptions Dividend income accruing to non citizens or foreign companies Dividend income accruing to non-citizens or foreign companies from investments in listed shares will be exempt providing investment made out of funds brought in to Sri Lanka. Profits and income of plantation companies Profits and income from cultivation of tea or rubber by any planation company, in which shares are owned by the Government, will be exempt from tax for a period of 2 years commencing from 01 April

6 Direct Tax Income Tax - Removal of exemptions Profits and income from any undertaking for the construction of any port The tax exemption granted from 01 April 2011 on the profits and income accruing to any person from carrying out any undertaking for construction of a port in Sri Lanka. Profits and income from the administration of any sports ground, stadium or sports complex The tax exemption granted from 01 April 2012 on the profits and income accruing to any person from the administration of any sports ground, stadium or sports complex. Profits and income from any service rendered within the port The tax exemption granted from 01April 2011 on the profits and income from any services rendered by any person or partnership in any port in Sri Lanka in the course of any business carried on within such port. Profits and income from operating any port terminal in Sri Lanka The tax exemption granted from 01 April 2011 on the profits and income accruing to any person from the operation of any port terminal in Sri Lanka. Profits and income accruing to any company, partnership or body of persons outside Sri Lanka The tax exemption granted from 01April 2014 on profits and income arising to any Company, partnership or body of persons outside Sri Lanka from provision of any computer software designed to meet the special requirement of Sri Lankan Airlines Ltd and Mihin Lanka (Pvt) Ltd. 6

7 Direct Tax Income Tax - Removal of exemptions Profits and income of local institutions Prevailing exemptions applicable to profits and income of certain local institutions specified in the statute will be withdrawn, except for the following: - Government Departments - Foreign Government - University - Co-operative Society - Central Bank of Sri Lanka, including the Monetary Board - Charitable Institution (subject to conditions) - Government assisted schools 7

8 Direct Tax Income Tax - Revision to existing exemptions Interest income on foreign loans granted on or after 01 April 2012 The current tax exemption granted on interest income accruing to any person outside Sri Lanka on loans granted on or after 01 April 2012 will be revised and such exemption will be available only to foreign banks and financial institutions. Tax holiday Exemptions on dividends distributed by companies post tax holiday period to be removed. Profits and income of international institutions The prevailing exemption granted on profits and income to be withdrawn other than on those arising from fees or contribution from the public. 8

9 Direct Tax Income Tax - New concessions Investments made in SMEs by Private Equity Funds or Venture Capital companies 50% reduction on tax payable by Private Equity Funds or Venture Capital Companies on profits earned by funding to upgrade SMEs, registered with the SMEs Board of CSE up to the trading level, for a period of 5 years. For this purpose the activities of Venture Capital Companies and Equity Funds and SME will be specified. The benefit of reduction would apply to fees for services. Provision of services to new SMEs by existing SMEs Any SME which create incubators for another SMEs by investing in a designated area, will be granted a 50% reduction of tax payable on profits from such activities, for a period of 3 years. Manufacture of red clay tiles 50% reduction on the tax payable on profits and income from locally manufactured red clay tiles, for a period of 3 years. Companies incorporated for MICE 50% reduction on the tax payable on profits and income of a company specifically incorporated for MICE (Meeting, Incentives, Conferences and Exhibitions) for a period of 5 years from the commencement of commercial operations. Modernization of existing factories 50% reduction of the tax payable for a period of 3 years on profits and income attributable to a company on expansion carried out by modernization of existing factories. The pre condition to enjoy such concession would be based on the generation of new employment opportunities within a period of one year from 01 April Necessary criteria for same is to be specified. 9

10 Direct Tax Income Tax - New concessions Investments in lagging regions 50% reduction of the tax payable for a period of 5 years on profits and income earned by a new company set up in a lagging region, if the following conditions are satisfied. - Minimum investment of USD 10 Mn or 500 new employment opportunities (with new EPF No.) - Engaged in the business of manufacturing (other than liquor and tobacco) or provision of any services. The tax concession period will be extended up to 8 years if new employment opportunities exceed 800, and up to 10 years, if the investment is for the business of Theme Park. Tax concessions will be effective from the date of commencement of commercial operations. Provision of internationally accredited courses or training programmes 50% reduction of tax payable for a period of 5 years by any person on profits from carrying out an academic entity which offers internationally accredited courses or training programmes aimed at geriatric care or child care. Construction of houses for elderly persons and government employees 50% reduction of tax payable for a period of 5 years on profits of any person engaged in the business of construction of houses for elderly persons (possibly senior citizen). 50% reduction of tax payable for a period of 5 years on profits of any person engaged in the business of construction and sale of housing units in collaboration with the Government, to Government Sector employees. Profits of companies listing shares in CSE Extend deadline of 31 March 2017 for listing of shares in Colombo Stock Exchange (CSE) by further 2 years (i.e. up to 31 March 2019). Further, the deadline has been extended to shares listed in any foreign stock exchange. In terms of this section, 50% reduction of tax rate is available for a period of 3 years. Ambiguity on the deadline whether it is 31 March 2019 or 31 March

11 Direct Tax Income Tax - New concessions Profits from development of seeds and planting materials by a company The tax payable on profits from locally developed seeds and planting materials would be reduced by 50%for a period of 5 years. Currently, such profits are exempt from tax and the exemption would end on 31 March Profits from agriculture using drip irrigation, greenhouse technology and high yielding seeds The tax payable by a company on the profits from agriculture carried on using drip irrigation method, greenhouse technology and high yielding seeds would be reduced by 50% for a period of 5 years. The terms greenhouse technology, drip irrigation and high yielding seeds are to be defined. 11

12 Direct Tax Income Tax - Removal of existing concessions Expansion of manufacturing business (other than liquor and tobacco) outside western province Currently, a 50% up to reduction on tax rate (up to a maximum of LKR 500 Mn) is available for an existing company if the following conditions are satisfied. - Investment in fixed assets (other than land and building) not less than LKR 300 Mn. - Investment should be made on or after 01 April 2015 but prior to 01 April A company is currently liable to tax at 28%. - Expansion does not include relocation of an existing company or a part of its operations. The proposal seeks to withdraw this concession. Profits of a new company engaged in the business of manufacturing other than liquor and tobacco Currently, the tax rate to be reduced by 50% for a new company, if the following conditions are satisfied; - The company should register with the IRD on or before 31 December Commit to an investment of not less than LKR 500 Mn. - Investment should be made within the period as specified by the Commissioner General of Inland Revenue. - The entity should not be formed by splitting or reconstructing an existing undertaking - The applicable tax rate on business profits should be 28%. The proposal seeks to withdraw this concession. Profits of local manufacturers (other than liquor and tobacco) engaged in business since 1970 Currently, tax liability is reduced by 10% for an existing company, if the following conditions are satisfied; - The company possesses the ability to compete with importers. - Should be liable to tax at the rate of 28%. The proposal seeks to withdraw this concession. 12

13 Direct Tax Income Tax - Determination of tax profits Qualifying payment It is proposed to allow, a deduction for the cost of acquisition of any machinery used in the business of canning fruits and vegetables, in computing profits from such business. This is in addition to the depreciation allowance claimable on such machinery. It is proposed to allow, a deduction for the cost of acquisition of machinery necessary for purifying sea sand for the construction industry, in computing profits from such business. This is in addition to the depreciation allowance claimable on such machinery. It is proposed to remove with retrospective effect, the relief granted on cost of acquisition or merger of banks or finance companies under the Banking and Financial institutions consolidation process. Triple deduction on research & development activities The triple tax deductions available for research and development (R&D) activities will be extended to accommodate endowments given to National Universities. The triple deduction for R & D expenses will be allowed, only if a technology advancement and yield development are established. Business of Life Insurance - Deductibility of expenses in the Profits from business of Life Insurance is determined by reference to the investment income of Life Insurance Fund less management expenses attributable to that business. It is proposed to define the term management expenses. 13

14 Direct Tax Income Tax - Tax rates Corporate Tax Rate structure will be limited to two tax rates i.e.15% and 30%. The higher rate (30%) is applicable to the profits and income from: - Betting & Gaming - Liquor - Tobacco - Banking and Finance including insurance, leasing and related activities etc. - Trading activities (other than manufacture or provision of services) Surtax Surtax will be imposed with effect from any Y/A commencing from 01 April 2016 at the rate of 25% of the income tax liability of profit on business of Tobacco, Liquor and Betting and Gaming. 14

15 Direct Tax Personal Tax Tax on interest income accruing to individuals from deposits The prevailing withholding tax rate of 2.5% on interest income accruing to an individual will be removed and such income will be considered as part of the taxable income of an individual. In the event such interest accrues to a person outside Sri Lanka, same will be taxed at the rate of 15%, unless relevant Double Tax Treaty provides for a lower rate. Currently, the tax withheld at 2.5% is considered as final tax. Tax on interest income accruing to senior citizens from deposits Interest income accruing to senor citizens will continue to be exempt from tax. Exemptions on profits from employment Exemptions from profits from employment would be limited to: - Retiring benefits and pension paid to Government employees out of the consolidated fund. - Profits from employment earned in foreign currency outside Sri Lanka, provided such earnings are remitted to Sri Lanka. - Profits from employment accruing to personnel of diplomatic missions. - Compensation for loss of office subject to certain limitations. - Provident fund balance due at the time of retirement. All other cash and non cash benefits will be taxed, if aggregate exceeds the tax free threshold. Deductions from Total Statutory Income and Assessable Income Prevailing deductions will be removed except for setting off of losses incurred from trade, business, profession or vocation, subject to specified limitations. 15

16 Direct Tax Personal Tax Changes to Income Tax rates Profits and income accruing to any individual in excess of LKR 2.4 Mn per annum, is to be taxed at a flat rate of 15%. This applies to employees under the PAYE scheme and self employed persons. Presently, such income is liable to tax at progressive rates ranging from 4%-24%. Profits from employment accruing to employees who are employed under more than one employer is to be taxed at a rate of 15%. Presently such income is liable to tax at 10% or 16%. Special privileges on tax payers Individuals who pay LKR 25 Mn or more will be granted special privileges, and such privileges will be regularized and specified through a gazette notification. 16

17 Direct Tax Income Tax Gain on disposal of listed shares Exemption on trading profits from disposal of listed shares Currently any gain on disposal of listed shares are exempt from tax, provided such transaction is subject to Share Transaction Levy (STL). It has been proposed to abolish STL and hence, there is an ambiguity whether the prevailing exemption on disposal gain will also be removed. We are of the view that the exemption remains since the abolition of STL is to support the capital market and further no revenue has been projected for this removal of exemption. Further to the contrary, removal of STL has been accounted for as a loss of revenue. 17

18 Direct Tax Economic Service Charge (ESC) Extension of scope of chargeability Currently chargeability to ESC would arise only if a person is exempt from Income Tax or has incurred a loss from business during the previous Y/A. The proposed amendment seeks to extend the tax base to cover persons who are liable to income tax. Removal of ceiling of maximum liability The present maximum ceiling of LKR 120 Mn per year will be removed. Increase of tax rate The tax rate will be increased from 0.25% to 0.5%. Set off of ESC against income tax The period provided for setting off ESC credits against Income Tax payable will be limited to 3 years (i.e. current Y/A and further 2 years). Currently, set off is permitted within 5 years. 18

19 Direct Tax New Investment Act Granting tax concessions for new investments Tax exemption for new investments will be granted under the New Investment Act with the direct supervision of the Ministry of Finance. Exemptions will not be granted in future under the Strategic Development Projects Act or the BOI law. 19

20 Indirect Taxes Value Added Tax (VAT) Nation Building Tax (NBT) Betting and Gaming Levy Land (Restrictions on Alienation) Act Import/ Export Duties and Levies Miscellaneous Taxes Levies and charges 20

21 Indirect Tax Value Added Tax Threshold The current threshold of LKR 3.75Mn per taxable period (one/three months) or LKR 15Mn per annum will be revised to LKR 3Mn per quarter or 12Mn per annum. Wholesale & Retail The chargeability to VAT on wholesale & retail trade will be removed - VAT was extended to wholesale & Retail w.e.f. 1 January 2013 with a threshold of LKR 500 Mn per quarter, which was reduced to LKR 250 Mn w.e.f. 1 January 2014 and LKR 100 Mn w.e.f. 1 January Exemption Telecom The exemptions applicable on import or supply of the following products will be removed; - Telecom equipment or machinery - High tech equipment including copper cables for telecom industry Input Credit Limitation would be introduced in claiming input tax credits on supply of goods chargeable at 8%. - Clarification also required with regard to carry forward input credit as at 31 December 2015 VAT Rate The present VAT rate of 11% and 0% will be revised to three bands; Incidence Export of goods / Provision of services outside SL, for payment in foreign currency Rate 0% Service Sector 12.5% Supply of goods (Manufactured / Imported (with the limitation of input tax) 8% Effective date 1 January 2016 The proposal fails to address the rate on import of goods specifically. Presumed the 8% rate will be applicable. 21

22 Indirect Tax Value Added Tax (VAT) History of VAT rates The following table depicts the changes in VAT rate Year Rate 1998 to 2002 (GST) 12.5% w.e.f. 01 August % and 20% w.e.f. 01 January % and 20% (including financial services) w.e.f. 01 January % (including financial services) w.e.f. 01 January %, 15% and 18% %(VAT on Financial Services 15%) w.e.f. 01 January %, 15% and 20%(VAT on Financial Services 20%) w.e.f. 01 January % and 20% w.e.f. 01 January % (including financial services) w.e.f. 01 January % 22

23 Indirect Tax Nation Building Tax Rate The present NBT rate of 2% will be increased to 4%. NBT was initially introduced at 1% in 2009 which was increased to 3% subsequently and reduced to 2% in Threshold The threshold of LKR 3.75Mn per quarter will be revised to LKR 3Mn per quarter Prior to 1 January 2015 the threshold was LKR 3 Mn per quarter. The currently applicable threshold of LKR 25Mn per quarter to hotels, guest house, restaurant, education services and supply of labour will be removed. The current LKR 25Mn threshold applicable to any locally procured agricultural produce in the preparation for sale would be continued. Exemption The current exemptions applicable on following articles or services will be removed; - Telecommunication services - Supply of electricity - Lubricants Effective date 1 January

24 Indirect Tax Betting & Gaming Levy Entry Fee The present casino entrance fee of USD100 per person will be removed this fee was introduced in the interim Budget proposals presented in January 2015 (Betting and Gaming Levy (Amendment) Act No.14 of 2015) Annual Fee Revision of annual levy: - business of playing rudjino will be reduced to LKR 5Mn per annum from LKR 200Mn - business of casino will be increase to LKR 400Mn per annum from LKR 200Mn. Personal liability LKR 1Bn Casino Industry Levy Personal liability imposed on directors and shareholders who fail to pay or attempt any act done to avoid payment of the LKR 1Bn one off Casino Industry Levy introduced in the interim Budget 2015 (Finance Act No 10 of 2015) Effective Date 1 January 2016 Chargeability criteria ( no change) Betting and Gaming Levy was introduced by Act No 40 of It is chargeable on persons carrying on the business of bookmaker or gaming (lawfully or unlawfully). If such business is carried on in different places by the same person, he is required to pay the levy for each such different place. (Each place is considered as a separate business for tax purposes). 24

25 Indirect Tax Land (Restrictions on Alienation) Act No. 38 of 2014 Restrictions on Transfer The restrictions imposed on transfer of land by foreigners will be removed for certain identified investments w.e.f. 1 January Currently, the transfer of land to foreigners, resident companies whose foreign shareholding is greater than 50% and foreign companies are prohibited subject to exemptions. Removal of Land Lease Tax (LLT) The Land Lease Tax (standard rate of 15% and concessionary rate of 7.5%) imposed on leasing of land by foreigners will be removed w.e.f. 01 January Currently leasing of land by foreigners, resident companies whose foreign shareholding is greater than 50% and foreign companies are subject to Land Lease Tax. The tax is charged at 15% or 7.5% of the total rent payable for the duration of the lease. Currently, the following are taxed at the concessionary rate of 7.5%: Land leased to a resident company, whose foreign shareholding is greater than 50%, operating for at least 10 years before the transfer Land leased to a subsidiary of holding company incorporated in Sri Lanka, where holding company owns at least 50% and foreign shareholding of holding company is greater than 50%. Provided, such entity was in commercial operation for 10 years before the lease. If the shareholding of parent company falls, such will be taxed at 15% Condominium above 4th floor where lease is for less than thirty five years Condominium below 4th floor where lease is for less than 99 years Lease of land situated within: License Zone under BOI Law No.4 of 1998 Tourist Development Area Industrial Estate Area declared by Minister as an area where reduced rate is applicable Effective date 1 January

26 Indirect Tax Import/ Export Duties and Levies Excise (Special Provisions) Duty The current concessions and rates will be revised. Customs Duty (CD) The present four band tariff structure of exempt, 7.5%,15%and 25%will be revised to three band structure of exempt, 15% and 30%. The current CD will be revised on the following items: - Beedi leaves, Beedi, Beer, Wine, Whisky & Ethanol - Garments, Foot-wear - Agriculture machinery & equipment, dairy industry machinery & equipment and fishing nets - Sports equipment & musical instruments - Yachts, caravan carriages, surfing equipment, mini cruise boats Tiles, ceramic and sanitary wear will be removed from existing negative list. The specific rate changes would be published in Gazette Notification. Submission of Import Customs Declarations electronically to be introduced by June New bonding warehouse after 1 April 2016 should have a minimum floor area of 50,000 square feet. It has been proposed to ban the importation of used washing machines, used TVs and used mobile phones w.e.f. 1 January All the regular importers should register with Sri Lanka Customs w.e.f. 1 January Duty free shops at Ports or Airports should operate in a joint venture with a local or foreign counterparts. It has been proposed to introduce a new Custom Law in place of existing Customs Ordinance. Effective from 20 November

27 Indirect Tax Import/ Export Duties and Levies Port and Airports Development Levy (PAL) The existing PAL rate will be increased from 5% to 7.5%. The PAL rate on certain electronic and electrical items will be reduced to 2.5%. PAL on certain machinery will be removed (plant and machineries used for construction, dairy and agricultural industries). Gazette to be issued for requisite changes. Special Commodity Levy (SCL) SCL will be increased on import of fish and fish related products. The current levy of LKR 175 per kg for vegetable fat will be reduced. SCL reduced on - Potatoes by LKR 25 per kg - Big onion by LKR 25 per kg Levy removed on Dhal Rate on certain commodities will be revised. Cess (imports) A 10% Cess will be imposed on import of jewellery. Cess (exports) Cess applicable on export of pepper, cloves and nutmeg will be removed. Import taxes on garments and footwear The present composite tax imposed on sale of garments to the local market by export oriented companies will be increased to LKR 200 per piece. The same rate would apply to the sale of foot wear to the local market by export oriented companies. The current rate for sale of fabric (LKR 40 per kg) and cut pieces (LKR 25 per piece) remain the same. The sale of export quality products to the local market by export oriented BOI companies will be restricted to 5% of the total turnover. 27

28 Indirect Tax Import/ Export Duties and Levies Agriculture Import duties on agricultural machinery and equipment will be removed. Fruit and vegetable industry Machinery utilized for dehydrated and canned fruit industry will be free from import duty. Dairy industry Import duties will be reduced on machinery and equipment. Gem and Jewellery A 10% cess on imported jewellery will be imposed. Import duties will be relaxed on importation of gold to approved CBSL licensees of 50. International trade A new Act will replace the Import and Export Control Act to ensure efficient import export system for domestic industries. Construction Import duties on cranes and concrete mixtures will be removed. Consumer goods Import duties will be revised on garments, shoes, electronic and electrical items and other accessories. Printed material Import duties on printed books, magazines and journals will be exempted. Motor vehicle Tax Rate - A simple unit rate of excise duty would be imposed on the basis of cubic centimeters based on the recently introduced tax base of full option manufacturers price. - Duties on certain vehicles will be revised. - Excise duty is reduced to 2.5% for vehicles which are run entirely on Solar, Hydrogen or Helium. 28

29 Indirect Tax Import/ Export Duties and Levies Motor vehicle Tax Rate - A simple unit rate of excise duty would be imposed on the basis of cubic centimeters based on the recently introduced tax base of full option manufacturers price. - Duties on certain vehicles will be revised. - Excise duty is reduced to 2.5% for vehicles which are run entirely on Solar, Hydrogen or Helium. Vehicle Permits - All the vehicle permits granted under different schemes will be abolished, including those of the Parliamentarians. 50% tax credit for importation - 50% tax credit will be granted for the importation of one motor car to exporters of over 20 reconditioned vehicles. Liquor manufacturers Minimum excise duty of LKR 250 Mn per month is payable by liquor manufacturers who are having distilleries LKR 50 Mn per month is payable by persons who are engaged only in liquor manufacturing 29

30 Indirect Tax Miscellaneous Taxes Share Transaction Levy The presently applicable levy of 0.3% on both the buyer and the seller on sale of listed shares will be abolished w.e.f. 1 January 2016 The Share Transaction Levy was introduced in 2005 under the Finance Act No. 05 of Levy Collected by the relevant stock broker, stock dealers or custodian bank which responsible for the settlement of the share transaction. Construction Industry Guarantee Fund Levy The levy will be abolished w.e.f. 1 January 2016, to encourage small and medium scale contractors. The Construction Industry Guarantee Fund Levy was introduced in 2005 under the Finance Act No. 05 of 2005 on every construction contract enforced in Sri Lanka by every construction contractor on the contract value. The currently applicable rates are as follows: The value of construction contract Rate Less than LKR 15Mn Nil LKR 15Mn 50Mn 0.25% LKR 50Mn 150Mn 0.5% More than LKR 150Mn 1% 30

31 Indirect Tax Miscellaneous Taxes Luxury & Semi Luxury Motor Vehicle Levy The levy will be abolished w.e.f. 1 April Luxury and Semi Luxury Motor Vehicle Levy was introduced under the Finance Act No. 16 of Luxury motor vehicle" means diesel motor vehicle, the cylinder capacity of which exceeds-2,500 c.c or a petrol motor vehicle the cylinder capacity of which exceeds 2,000 c.c. other than a land vehicle Semi luxury motor vehicle" means any diesel motor vehicle the cylinder capacity of which exceeds 2,200 c.c. but does not exceed 2,500 c.c. or a petrol motor vehicle the cylinder capacity which exceeds 1,800 c.c. but does not exceed 2,000 c.c. Excise Duty The liquor manufacturing licence fee and duty rates will be revised (license fee LKR 150 Mn) The excise duty on liquor manufacturing is governed by Excise Ordinance. Stamp Duty (SD) SD on usage of credit cards for foreign purchases will be increased to 2.5% from 1.5%. New Exemptions - local usage of credit cards - share certificate At present a share certificate on new or additional issue or on transfer or assignment subject to exemptions is liable to 0.5% on the aggregate value of shares. - Transfer of real estate asset to Real Estate Investment Trust (REIT) structure that distributes 90% or more of income to REIT unit holders A Gazette Notification will be published to notify the changes. Effective from 01 January

32 Indirect Tax Miscellaneous Taxes Tourism Development Levy (TDL) The currently applicable TDL of 1% will be removed. Currently, the TDL is 1% on the turnover of the companies, on all institutions, licensed under the Tourism Development Act No. 14 of Mansion Tax The Mansion Tax of LKR 1 Mn, on condominium units will be removed. The first instalment is payable on or before 31 March The mansion tax is levied on every owner of a mansion constructed on or after April 1, 2000 in terms of Finance Act No 10 of Mansion is defined to mean any building constructed on or after April 1, 2000 for residential purpose of which the floor area is not less than ten thousand square feet as per the building plan approved by the local authority of the local authority area wherein such building is situated or the value of such building, as at the first day of April of any relevant year, is not less than rupees one hundred and fifty million as determined by the Government chief valuer or by an officer authorized by him, after making any adjustment as may be prescribed. Telecommunication International Telecommunication Operators Levy (ITOL) on incoming calls will be increased from USD 9 cents to USD 12 cents. An Environmental Fee will be charged per tower at the rate of LKR 50,000 per annum. Cess levied for international transit traffic at the rate of 2% will be exempted. (VAT exemptions applicable on import or supply of telecom equipment or machinery and high tech equipment including copper cables for telecom industry is removed. NBT exemption on telecommunication services will also be removed). 32

33 Indirect Tax Levies and Charges Increase of Embarkation Levy The currently applicable levy will be increased from USD 25 to USD 35. This will apply for both ship and air passengers. Revision of Passport Fee The passport fee will be revised w.e.f 1 January 2016 as follows: - One day service Adult LKR 10,000 Child LKR 5,000 - Normal Services Adult LKR 3,000 Child LKR 2,000. Revision of Application Fee The currently applicable application fee for dual citizenship of LKR 250,000 will be increased to LKR 300,000. The fee for SAARC Visa will be increased from USD 10 to USD 20. Introduction of Residence Visa Fee New Residence Visa Fee for foreigners will be introduced to encourage foreign investments - For three year visa, the fee will be USD 1 Mn (as per technical note) and USD 250,000 (as per Budget Speech) - discrepancy between the technical note and budget exemption. - For permanent residence visa, the fee will be USD 5 Mn. 33

34 Indirect Tax Levies and Charges Introduction of vehicle valuation certificate fee Fee for registration of unregistered vehicles Introduction of Vehicle Entitlement Fee Introduction of Emission Levy The following will be charged on valuation certificates obtainable for finance facilities. - Three wheeler/motor Cycle : LKR 5,000 - All other vehicles : LKR 25,000 w.e.f 1 January 2016 Unregistered locally assembled vehicles should be registered before 31 March 2016 and would be subject to the following fee w.e.f 1 January Cars/Vans :LKR 1 Mn - other vehicles :LKR 0.75 Mn The Motor Vehicle Importers Registration Fee introduced by the Finance Act No.10 of 2015 of LKR 1.5 Mn will be removed. The following fee will be imposed in lieu of Motor Vehicle Importers Registration Fee w.e.f 1 January 2016 prior to opening letters of credits (LCs). - Motor Cycle / Three wheelers : LKR 2,000 - Motor cars :LKR 15,000 - Other vehicles :LKR 10,000 This fee will be payable to the Commissioner General of Inland Revenue. At the point of renewal of license fee of every vehicle over three years will be charged an Emission Levy of LKR 5,000 per annum. The levy is payable to the Divisional Secretariat. Motor Vehicle License Fee The Motor Vehicle License fee will be revised w.e.f. 1 January Auctioning of number plate A unique life time number will be granted upon charging a one off fee of LKR 2.5 Mn. 34

35 Indirect Tax Levies and Charges Introduction of Annual Fee / Revision of Company Registration Fee Every company registered with the Registrar of Companies will be subject to an Annual License fee payable to the Registrar of Companies as follows; - Private companies : LKR 60,000 - Public Quoted Companies : LKR 500,000 - Other : LKR 100,000 Non functioning companies will also be liable to the annual registration fee. The current company registration fee will be revised w.e.f. 1 January The voluntary liquidation of a company will be charged LKR 250,000 on liquidation of the company. Discrepancy between the technical notes (LKR 250,000) and the budget speech (LKR 500,000). Requirement to register Business Entities with their respective local councils All business entities should be registered with the respective local councils at a nominal fee of LKR 100 per year. Fine on road accidents A fine of LKR 10,000 will be imposed on person who is responsible for road accidents. In addition, the cost to the Government property damage (if any) is also payable. Similar fine on road accidents are being levied in India, South Africa, United Kingdom, United Arab Emirates etc. Beedi manufacturing license fee The currently applicable license fee will be increased from LKR 1,500 to LKR 5,000. Charge on airline A charge will be imposed on Airlines on the sale of international tickets at USD 2 per passenger. 35

36 Indirect Tax Levies and Charges Cash withdrawal charge Following charges will apply on cash withdrawals; Less than LKR 1 Mn Nil Between LKR 1 Mn and LKR 10 Mn 2% Above LKR 10 Mn 3% Fee on bank draft Maximum fee on bank draft LKR 150 per draft Tele drama, Film and Commercials Levy The current exemption available for Tamil tele dramas, films and advertisements will be extended to English tele dramas, films and advertisements 36

37 Exchange Control Regulations 37

38 Exchange Control Regulations Foreign Exchange Management Act A new Act named Foreign Exchange Management Act will be introduced to facilitate foreign investments. The current Exchange Control Act No. 24 of 1953 will be repealed. Securities Investment Account (SIA) Proposed to abolish SIA, currently used by the foreign investors to route the investments to Sri Lanka and to allow the investors to route money through any bank account existing in the banking system. No criminal action against any person making inward remittances of monies held outside Sri Lanka through the banking channel except where the proceeds are the result of terrorism, drugs, human trafficking and corruption. Money Changers Liberalize the foreign currency changing business, subject to a license fee and guidelines issued by the Central bank. Banking Proposed to revise the exposure on government securities for non-residents from 12.5% to 10% of the total outstanding stock of treasury bills and bonds. Foreign borrowing Budget proposals refer to encouragement to local companies to borrow from overseas. 38

39 Tax Administration 39

40 Tax Administration Improving treasury operations A Revenue Efficiency and Investigation Unit will be established at the Treasury with the view to enhancing the revenue in the country. This unit will investigate all revenue related matters, customs, Inland Revenue and valuations. Revenue collection Revenue collection will be initiated at Divisional Secretarial Level. Tax refunds Refunds claimed in the Return of Income should be finalized within three years of such claim. Any refunds that are not finalized within the stipulated 3 years period, would be allowed as a set off against the future tax payable. Penal provisions In order to ensure due compliance of tax and to enhance the tax collection, penal provisions will be amended to cover tax payers and the tax practitioners. Transfer pricing The domestic transfer pricing administration will be simplified. The penal provisions will be introduced with a view to ensure proper implementation of Transfer Pricing Regulations. 40

41 Tax Administration Furnishing of statement of accounts The interpretation of an Approved Accountant has been extended to include an AAT Member and any individual who has been granted approval by CGIR to perform such work. Restriction is made for an AAT member to perform audits of companies where the turnover not exceeding LKR 100 Mn an provisions will be introduced to grant approval by CGIR for such person. Tax concessions Tax concessions granted to any investments will be strictly under the supervision and monitoring of the Ministry of Finance. RAMIS The first phase of the Revenue Administration Management Information System (RAMIS) will be effective from 1 January RAMIS will enable automated services for filing of returns, payment of taxes, etc. TIN / BRN Inclusion of the Tax Payer Identification Number (TIN) or the Business Registration Number (BRN) in all transactions would be mandatory. Income tax return A tax payer friendly one page simplified return will be introduced. 41

42 Tax Administration Strengthening tax administration The existing tax laws would be redrafted to bring necessary improvement to legal framework to ensure clarity, consistency and simplicity to reflect the features of modern tax systems which will help taxpayers to understand the system easily and eliminate loopholes that have been created by the ambiguities in laws while strengthening tax administration. For this purpose, technical assistance will be obtained from IMF and proposed completion by end One-stop-shop Establish a "one-stop-shop at Sri Lanka Customs, which provides all the necessary permissions, clearances and approvals at a single window platform. Authorized officers from relevant government agencies, including Department of Import and Export Control, Sri Lanka Standards Institution, Consumer Affairs Authority, Inland Revenue Department, Department of Commerce, Department of Registrar of Companies Department of Agriculture, Department of Animal Production and Health etc., will be housed at the "one-stop shop. Tax Appeals Commission Steps will be taken to ensure the independency of the Tax Appeals Commission and the appellate procedure, adhering to the principles of natural justice. Technical Rectification Requisite amendments to be introduced to following statutes with retrospective effect to rectify certain ambiguities and unintended effect. Inland Revenue Act No 10 of 2006 Value Added Tax Act No.14 of 2002 Nation Building Tax Act No 9 of 2009 Economic Service Charge Act No 13 of 2006 Finance Acts and Finance (Amendment) Acts Betting and Gaming Levy Act No.40 of 1988 Default Tax (Special Provisions) Act No 16 of 2010 Telecommunication Levy Act No 21 of 2011 Ports and Airports Development Levy Act No 18 of 2011 Tax Appeals Commission Act No 23 of 2011 Imports and Exports (Control) Act No. 1 of 1969 Land ( Restriction on Alienation) Act No 38 of 2014 Strategic Development Projects Act No.14 of

43 Effective Dates of Proposed Amendments All statutory provisions relating to the following taxes are effective from the dates mentioned below unless specified otherwise; Effective Date Type of Tax 1 April 2016 Income Tax Economic Service Charge 1 January 2016 Value Added Tax Nation Building Tax Betting and Gaming Levy Land (Restrictions on Alienation ) Act Immediate effect Cess Port and Airport Development Levy Customs Duty Excise (Special Provisions) Special Commodity Levy 43

44 Notes 44

45 About KPMG Contact Us 156 Countries 162,000 People Globally 1,100 People in Sri Lanka 1,500 Clients Six Branches KPMG operates as a global network of independent member firms offering audit, tax and advisory services; working closely with clients, helping them to mitigate risks and grasp opportunities. We have more than 162,000 outstanding professionals working together to deliver value in 156 countries worldwide. KPMG in Sri Lanka is one of the largest professional services firms and is also the oldest Chartered Accountancy firm in the country counting a history spanning over a century since inception in The firm presently has a resource base comprising of 16 partners and over 1100 professionals and associates. The firm s presence spans across six districts namely Colombo, Galle, Kandy, Kurunegala, Hambantota and Jaffna, along with an overseas branch in the republic of Maldives. The firm has large practices in audit, tax and advisory areas and provides services to over 1,500 client organizations in Sri Lanka. The service portfolio of the firm spans across areas such as External Audit Services, Tax Services, Internal Audit and Risk Consultancy Services, Accounting Advisory, IT Advisory, Deal Advisory Services, Management Consultancy Services and HR Advisory Services. Recognized for Professionalism and Integrity KPMG in Sri Lanka was recognized as one of THE MOST RESPECTED ENTITIES IN SRI LANKA in the ranking published for 2009, 2012/2013 and More recently KPMG was ranked among the most respected entities in the country for 2015, in the 11th and latest edition of LMD s rankings and becoming first in the financial service category. Shamila Jayasekara Partner Head of Tax KPMG in Sri Lanka Tel: sjayasekara@kpmg.com Suresh Perera Principal Tax & Regulatory KPMG in Sri Lanka Tel: sperera@kpmg.com KPMG Address: No. 32A, Sir Mohamed Macan Markar Mawatha, Colombo 3, Sri Lanka Tel: Fax: kpmgsl@kpmg.com Web: KPMG Tax Practice The Tax Practice in Sri Lanka comprises of a professional team counting experience in both corporate and indirect tax areas with local insight and global reach. The team includes over 50 full time tax professionals and associates who together service over 700 clients in a range of tax assignments. Advising and assisting many Multinationals, Conglomerates and listed companies, our experiences are numerous across a range of industries and organizations.

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